Will mega marijuana deal get approval in New York?

MedMen acquisition of PharmaCann could double footprint, violate law

1of11An employee speaks to customers at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service2of11An employee wears a shirt reading "Shop. It's Legal." while taking an order for a customer at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service3of11A marijuana leaf design is seen in the window of the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service4of11Employees prepare orders for customers in the processing room at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service5of11Employees prepare orders for customers in the processing room at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service6of11An employee takes a customers order at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service7of11An employees reaches for a container in the processing room at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service8of11An employee wears shirt reading "Heal. It's Legal" while helping a customer select marijuana strains at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service9of11Containers sit on a counter in the processing room at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service10of11Employees prepare orders for customers in the processing room at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service11of11Accessories are displayed as customers browse products on computer tablets at the MedMen dispensary in West Hollywood, California, U.S., on Tuesday, Jan. 2, 2018. California launched legal marijuana Monday, and customers lined up to celebrate the historic moment in San Diego, Sacramento and Oakland -- some of the municipalities given the green light to start sales on January 1. Meantime, in Los Angeles and San Francisco, the state's first- and fourth-largest cities, customers were turned away empty handed. Photographer: Patrick T. Fallon/BloombergPatrick T. Fallon/Bloomberg News Service

ALBANY — The planned merger of two of the nation's largest cannabis companies is being closely watched by industry insiders in New York who are wondering just how state regulators are going to handle an acquisition that, on its face, seems to violate state law.

MedMen Enterprises and PharmaCann announced the $682 million deal to stockholders last week, noting that the acquisition would create the nation's largest cannabis company with licenses to operate 79 facilities across a dozen states, including two cultivation facilities and eight medical marijuana dispensaries in New York.

The only catch?

New York Public Health Law, which allows marijuana for medical use only, prohibits a registered marijuana organization from owning and operating more than four dispensaries in the state. The provision was designed to prevent market domination, even as some argue it limits access for patients who must travel to far-flung destinations to get their medicine.

MedMen, a Los Angeles-based company known for its high-end marijuana stores, would acquire the assets and licenses of Illinois-based PharmaCann in the stock deal, though it must gain regulatory approval from local and state authorities in each of the markets where those assets are held.

"We are in talks with the regulators in all of the jurisdictions impacted by this acquisition, including New York," said MedMen spokesman Daniel Yi. "The first step in any acquisition is for the two parties to agree to the terms and enter into a binding contract. Then you go seek approvals from all the relevant regulators. We have begun that process now."

New York's Department of Health, which oversees the state's still-nascent medical marijuana program, said Monday that any merger proposal submitted to the agency for approval must be in compliance with state law. There are also requirements regarding ownership changes, said department spokeswoman Jill Montag.

"Regulations prohibit a registered organization from changing the composition of its ownership without prior written approval of the Department of Health," she said. "MedMen and PharmaCann do not have approval from the department to conduct this transaction, and at this time the department has insufficient information to determine if approval can be granted."

MedMen said it expects the transaction to close within six months to a year. It declined to speculate on its plans should New York reject the deal.

"It would not be proper for us to get ahead of the process," Yi said. "We are currently in talks with regulators and we feel confident about the outcomes."

In a news release issued Monday, MedMen said that it will use "commercially reasonable efforts" to transition licenses to a third party if it is unable to gain regulatory approvals within a two-year time span, with proceeds going to the company and its investors.

Founded in 2014 in Oak Park, Ill., PharmaCann was one of the five original organizations registered to operate grow sites and retail stores in New York, which went live with its medical marijuana program in January 2016.

The firm quickly became a major player in the industry, and today is considered one of the nation's leading providers of medical cannabis with operations in Illinois, New York, Maryland and Massachusetts, and planned expansions in Michigan, Ohio, Pennsylvania and Virginia.

Its facilities in New York include a cultivation center in Orange County and dispensaries in Albany, the Bronx, and Central and Western New York.

MedMen, meanwhile, had become a major player of its own, primarily out west, selling both recreational and medical marijuana. It entered the New York market last year when it bought out Bloomfield Industries, one of five original organizations licensed to operate in the state.

But it didn't garner much attention until this past spring, when MedMen opened its first dispensary in Manhattan on pricey Fifth Avenue. The move appeared to be a gamble that New York would soon legalize recreational marijuana, since the state's tightly regulated medical marijuana program is small by industry standards and unlikely to generate sizable revenues without significant expansion.

Indeed, New York appears poised to jump on the recreational bandwagon. Gov. Andrew M. Cuomo in January ordered a study into a regulated, adult-use program, and by June the Department of Health concluded such a program would have more positives than negatives.

Bethany Bump writes about all things health, including state and local health policy, addiction and mental health for the Times Union.

She has previously covered education, business and local governments, and won awards for her coverage of health care and addiction issues.

Bump joined the Times Union in 2015, after a four-year stretch at The Daily Gazette in Schenectady, N.Y.She graduated from Syracuse University's S.I. Newhouse School of Public Communications in 2011, with a bachelor's degree in journalism and political science.